When it comes to vehicles, we all know periodic tune-ups are necessary to keep the engine running smoothly. If we’re not diligent with periodic maintenance, it can result in hundreds of dollars in costly repairs or needing to replace the vehicle altogether. Trust me—I’ve been there!
It can work the same way in overseeing our church’s finances. While solid financial accountability systems take extra effort, they are important tools we should use to avoid damage and keep the engine of ministry running smoothly.
While not an exhaustive list, start today with a brief tune-up by considering where your church stands when it comes to these five very practical and important areas:
1. EFFECTIVE BUDGETING
A budget is a plan for allocating available resources—it’s a strategic way to dispense money to areas of ministry. It includes setting goals, assigning priorities to them, developing a plan for achieving them, operating the plan, evaluating the results, and re-planning.
Developing a budget and getting it approved is just the beginning. After the budget has been approved, it must be administered and used. Has your church adopted a budget? Have you considered different budgets for cash, operating, and capital purposes? Do you monitor actual income and expenses compared to the budget on a monthly or other periodic basis throughout the year?
2. APPROPRIATE TRANSPARENCY
Unlike most nonprofits, churches are not required to file the Form 990 annual information return with the IRS, which is made available to donors around the world 24/7 through the Internet. Many givers have grown accustomed to reviewing this key information about a nonprofit’s finances before choosing to make a donation.
Without the obligation to file a Form 990, how does your church demonstrate appropriate transparency—especially in an era where givers are increasingly expecting accountability from churches and ministries? Are your latest audited or other financial statements available upon request? What other policies do you have related to transparency of financial information? Watch a short video here from ECFA President Dan Busby on enhancing trust through appropriate transparency.
Finally, do you use the opportunity of transparency to go beyond the mere reporting of financial information but also to connect with givers through testimonies of what God has done through their generosity?
3. EVALUATING WORKING CLASSIFICATION
Given the unique workforce needs of many churches, a key legal liability area may be worker classification. More specifically, what criteria are you using to determine whether workers qualify as W-2 employees or 1099 independent contractors?
In a worker classification audit, if your church has been incorrectly classifying independent contractors that should have been employees, the bill could be thousands of dollars. Pay careful attention to this area, especially as the IRS and Department of Labor have been stepping up their oversight of worker classification in recent years.
4. HONORING RESTRICTED GIFTS
Many churches benefit from restricted gifts from donors, but with this benefit comes great responsibility. A “restricted” gift is one given by the donor that is to be used within a certain time or for a specific purpose narrower than the general operating purposes of the ministry. A common example would be a missions or building fund.
One of the surest ways for a church to lose trust with donors is to use restricted gifts for a purpose different than those intended by donors. Do you have proper accounting systems in place to track restricted gifts as they are received and expended? Is your board or finance committee periodically updated on restricted fund balances and their related purposes?
5. AVOIDING FRAUD
Fraud and misuse of a church’s resources can create sensational news—and not good news. Sadly, the result is the loss of credibility and a diminished witness of the Gospel in the sight of skeptics—not to mention the loss of effectiveness. While not all fraud can be eliminated, we should find a reasonable balance between preventive efforts and risks.
The details are beyond the scope of this article, but all churches should conduct some type of annual internal audit or testing over key areas like bank reconciliations, digital transactions, and payroll taxes. For larger churches, an external audit by an independent CPA should be the goal.
Evaluating areas like these is a helpful starting point in strengthening the accountability of your church.
Michael Martin is vice president of ECFA. Used with permission from the ECFA Knowledge Center. ECFA.org